Implementing a proper platform is no small feat, the paper emphasizes. It “requires significant resource allocation, technology investment, project management, and collaboration among various departments and with the provider,” said Fonseco, research director of Celent’s Securities and Investment Group.

Camargo, an analyst with the Securities and Investment Group, said that there is a demand especially for integration – for a platform that seamlessly combines the front, middle, and back offices.

That terminology, by the way, “front,” “middle,” and “back office,” sounds almost quaint, or at least I’m sure it would sound quaint had not custom worn down our recognition of metaphorical oddity.

A Plebeian Image

As a quick reminder:

the term “front office” refers to the advisor/client relationship;

the “middle office” functions include analytics, the development and maintenance of models, etc.;

the “back office” performs those functions that clients think least about (when all is going well) – compliance, data storage and their kin.

Celent gives us a handy image, thus:

The traditional names always remind me of a shotgun apartment with just three rooms. Such apartments are easy to construct, accordingly inexpensive, and valuable as starter homes for those of us who aren’t ultra high net worth. But it is such an obviously non-HNW image that I’m surprised no other nomenclature has yet come along to banish it.

Outsourcing

Getting the platform right, for most wealth management firms, involves outsourcing. As the report observes, there are many different sorts of outsourcing which are by convention listed in four groups: business process, knowledge process, finance and accounting, and IT outsourcing.

Although some firms remain wary of the confidentiality and privacy issues raised by outsourcing, in all these varieties, especially when it involves passing information to an offshore location, necessity has proven to be the mother of accommodation. More specifically, there is a “need to reduce costs, to keep pace with changing regulations, and continuing challenges of low product yields” – these needs have pressed managers to make increased use of outsourcing for noncore processes.

As the above diagram shows, Celent has broken up the traditional three offices into 11 functions, while retaining the shotgun-home imagery. The platform proper consists of the sort of “noncore, but integral, business operations and processes” that can typically be outsourced.

Compliance and Client Meetings

One of the great drivers of outsourcing and technological change in the wealth management world is the quintessentially back office task of compliance. Both the U.S. and the E.U. are increasing their scrutiny of managers “around fiduciary responsibility, investment suitability, tax reporting, and anti-money laundering.”

Compliance isn’t something that can be confined to the ‘compliance function’ on charts such as the above. Financial planning and investor communications must incorporate know-your-customer and risk questionnaire data. Also, trading components of the overall system have to track and report on an adjusted cost basis. Accordingly, platform vendors offer an open architecture and the underlying infrastructure managers need to integrate their systems so the “back office” compliance officers can do their job.

Separately, one great desideratum of wealth managers is a “sticky” relationship with their clients: they want to tailor their products and services to the particular client in such a way that their involvement won’t be fungible. They have to “raise their game” in order to do this properly, says Celent, especially since clients these days have ever-improving “access to market news and portfolio information via mobile devices and alerts.”

To help with this customization, technology vendors have been adding to their software “a presentation module that sits on top of their existing front office functionalities,” with a friendly user interface that advisers can employ in client meetings.